📝 BoJ USD/JPY Intervention Highly Unlikely: ING FX Strategy

• The last time the BoJ sold USD/JPY (a rare occurrence) was back in June 1998 in the middle of the Asian crisis when USD/JPY was trading at 145. USD/JPY is at neither of those extreme levels now

• To justify own-account FX intervention to sell USD/JPY, Japanese authorities would have to strongly argue that the weak yen was not only a Japanese problem but a global problem.

• The only case we see for the Japanese Ministry of Finance to instruct the BoJ to sell USD/JPY is in the case of a disorderly FX move. That will be a function of the speed ofthe move and market conditions.

• Prior FX interventions for disorderly moves have come when one month traded USD/JPY volatility was closer to 18/20%. The recent move to 125 saw traded volatility rise to 11%. We suspect USD/JPY would have to be trading at or above 130 for volatility to be anywhere near the 18/20% again.

• Our BEER model shows a real medium-term 9- 10% overvaluation of USD/JPY. On average, oscillations within the 1.5 standard deviation band (currently, +/- 15%), suggest that the valuation is not overstretched

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